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Research

The Future of the Center: The Core City in the New Economy

Joel Kotkin

November 1999

PART 4: ROOTS OF RECOVERY II: IMMIGRANTS AND THE GLOBAL ECONOMY

Perhaps no one factor has more revivified the geography of the American metropolis
in recent years than immigration. Before the onset of the renewed immigration wave
in the 1970s, most American cities seemed destined for the fate that visited St. Louis—rapid
depopulation, a loss of entrepreneurial initiative, and diminishing regional importance.
America, noted Irving Kristol in the mid-1970s, seemed to be bent on constructing
"an urban civilization without cities."

In the 1990s native-born Americans continued to flee the cities with only two of
the nation's ten largest metropolitan areas, Houston and Dallas, gaining domestic
migrants in the decade. At a time when Americans were fleeing the biggest cities,
immigrants were becoming more urban; as over 2.5 million native-born Americans fled
the nation's densest cities, over 2.3 million immigrants came in
.

The impacts were greatest in five major cities—New York, Los Angeles, San Francisco,
Miami, and Chicago—which have received more than half of the estimated 20 million
legal immigrants and three to five million illegal immigrants arriving over the past
quarter century. Without these immigrants, these cities would have likely suffered
depopulation as occurred in cities such as St. Louis, Baltimore, or Detroit, which,
until recently, have attracted relatively few foreigners.

In the process, America's major cities, and a growing number of their midopolitan
communities, have become ever more demographically distinct from the rest of the country.
In 1930 one out of four residents of the top four "gateway" cities came from abroad,
twice the national average; by the 1990s, one in three was foreign born, five times
the norm. Fully half of all new Hispanic residents in the country between 1990 and
1996 resided in the ten largest cities. Asians are even more concentrated, with roughly
two in five residing in just three areas, Los Angeles, New York, and San Francisco.

As has occurred throughout the history of cities, demographic distinctiveness once
again helps define the uniqueness of the urban space
. This occurred not only earlier in American history, but also in the great cities
of the past, such as Alexandria, Rome, Venice, Amsterdam, and London. All displayed
the same kind of multi-ethnic quilting that now characterizes many of the largest
American cities at millennium's edge. Ethnic diversity, in this sense, is not a politically
correct notion, but an economic asset of cities, a comparative advantage that is culturally-derived
and less subject to undermining by traditional urban weaknesses such as high taxes,
regulation, and political corruption.

Similarly, immigration has accompanied the growing importance within cities of another
traditional bastion—cross-cultural trade. As world economies have developed through
the ages, such exchanges between races and cultures have presented enormous opportunities
for cities. As Fernand Braudel notes:

A world economy always has an urban center of gravity, a city, as the logistic heart
of its activity. News, merchandise, capital, credit, people, instructions, correspondence
all flow into and out of the city. Its powerful merchants lay down the law, sometimes
becoming extraordinarily wealthy.

Miami's Latin-based Global Trading Center

Newcomers have redefined some American cities, once backwaters, into global-trading
centers. Miami's large Latino population—including 650,000 Cubans, 75,000 Nicaraguans,
and 65,000 Columbians—has helped turn the one time "sun and fun" capital into the
dominant center for American trade and travel to South America and the Caribbean.1
Although much of this development takes place outside the downtown district, in areas
such as Coral Cables and around the airport, the area's globally oriented business-service
infrastructure remains tied to the central core. Modesto Maidique, himself a Cuban
émigré and President of Florida International University, observes:

If you take away international trade and cultural ties from Miami, we go back to
being just a seasonal tourist destination. It's the imports, the exports, and the
service trade that have catapulted us into the first rank of cities in the world.

Ethnic diversity, in this sense, is not a politically correct notion, but an economic
asset of cities, a comparative advantage that is culturally-derived and less subject
to undermining by traditional urban weaknesses such as high taxes, regulation, and
political corruption.

As in Renaissance Venice, early modern Amsterdam, or London, the increasing ethnic
diversity of America's cities plays a critical role in seizing the "cross-cultural"
trade niche. Over the past 30 years cities such as New York, Los Angeles, Houston,
Chicago, and Miami have become ever more multi-ethnic, with many of the newcomers
hailing from growing trade regions such as East Asia, the Caribbean, and Latin America.
In these cities, the presence of large immigrant clusters often plays a role similar
to that played by resident outsiders (e.g., Armenians, Germans, and Jews in Renaissance
Venice) in forging not only economic ties, but also critical bonds of cultural exchange
and kinship networks.

In the current epoch, this process has been accelerated by technological change over
the last half century, which has seen the price of transoceanic calls fall by over
90 percent, air travel by 80 percent, and ocean freight charges cut in half. With
the rise of the internet and other communications technologies, such as satellites,
global trade-related activities will become ever more important and accessible to
a broader range of cities. Only 6 percent of American GDP in 1970, these activities
constituted 8.5 percent by 1980, and today they are up to roughly 12 percent.

A. The Case of Toytown

Cities, with their increasingly diverse populations and concentrations of air, sea,
and land transportation infrastructure, are natural beneficiaries of this trend. For
decades the industrial era just east of Los Angeles's financial district was an economic
wreck. A fifteen-square block area was inhabited largely by pre-World War II derelict
buildings abutting the missions, flophouses, and cheap hotels of skid row. Land values
in the area—known only as Central City East—stood at $2.75 a square foot (a fraction
of the over $100 a square foot that same property commands today after redevelopment).
With vacancy rates hovering around 50 percent, most Los Angeles officials all but
wrote off the area as anything more than a dumping ground for the city's growing homeless
population.

Yet to a handful of immigrants, led by Hong Kong native Charlie Woo, the area was
perfectly suited for the wholesaling and distribution of billions of dollars in toys
being unpacked at the massive twin ports of Long Beach and Los Angeles, the nation's
dominant hub for U.S.-Asia trade and home to the world's third-largest container port.

Toytown is not alone in playing this role in downtown Los Angeles. Specialized districts
which a Venetian would have recognized—the downtown Fashion Mart, the Flower District,
or Toytown—are crowded with shoppers, hustlers, and buyers, speaking in an odd mixture
of Farsi, Hebrew, Spanish, Chinese, Korean, and English. These centrally located districts
vitality contrast with the longstanding weakness of downtown's office market, which
has been losing companies and tenants to other parts of the city.

Although "Toytown" is located adjacent to the central business district, immigrant
driven centers of commerce do not, by necessity, locate next to the core area. Cities
in this sense are highly individualistic; some use their traditional centers for such
activity, but others, often for historical reasons, see much of their immigrant-driven
development dispersed, although in often highly concentrated, smaller "central" districts.
In New York, for example, the prime Asian trade district has not developed close to
the expensive mid-town or downtown core, but on the Canal Street hub in the city's
expanding Chinatown. Similar trade-oriented districts have risen in other cities—such
as the "Asia Trade District" along Dallas's Harry Hines Boulevard, or the Harwin Corridor
in the area outside the 610 loop in Houston—in often unlikely patches of aging suburbia.
For example, the Harwin area is a once forlorn strip of office and warehouse buildings
developed during the city's expansion in the 1950s and 1960s; today the area has been
transformed into an auto-oriented suk for off-price goods for much of East Texas,
featuring cut-rate furniture, novelties, luggage, car parts, and electronic goods.

These shops, owned largely by Chinese, Korean, and Indian merchants, have grown from
roughly 40 a decade ago to more than 800, sparking a boom in a once-depressed real
estate market. Over the decade, the value of commercial properties in the district
has more than tripled, and vacancies have dropped from nearly 50 percent to single
digits. "It's kind of an Asian frontier sprawl around here," comments David Wu, a
prominent local storeowner.

Charlie Woo and The Rise of L.A.'s Toytown

Charlie Woo is widely regarded as the "Father" of "Toytown," a revitalized manufacturing
district in downtown Los Angeles. Woo's guanxi, or connections, in Asia helped him
establish close relationships with scores of toy manufacturers in Asia, where the
vast majority of the nation's toys are produced. The volumes he imported for his company's
firm, Megatoys, allowed him to take a 20 percent margin compared to the 40 to 50 percent
margins sought by the traditional small -toy wholesalers.

Yet Woo's ambitions extended beyond his own business. To him, the greatest opportunity
lay in duplicating the kind of specialized merchandising districts so plentiful in
his native Hong Kong. Largely through Woo's urgings, the district by the end of the
1990s has over 500 different toy importers, warehouses, and distributors, employing
roughly 6,000 people and has revenues estimated at roughly $500 million, helping to
engender a renaissance as well in local toy-making and design.1 The development of the district has allowed Los Angeles to control roughly 60 percent
of the $12 billion in toys sold to American retailers.2

For immigrant-dominated businesses such as in Toytown, the geography of downtown—with
its transit links, diverse population, and relatively cheap space—still makes sense.
For Charlie Woo's customers, most of whom are Chinese, Vietnamese, Latino, and Middle
Eastern immigrants, the setting remains the most comfortable meeting place. Woo suggests:

There is an advantage to being here. To people from Mexico, if we say we're in downtown
LA, then they're comfortable. The same is true for people from China or Taiwan. This
is where the information comes together.3

Indeed few American cities have been more transformed by trade and immigration than
Houston. With the collapse of energy prices in the early 1980s, the once-booming Texas
metropolis appeared to be on the road to economic oblivion. Yet the city has rebounded—in
large part due to the very demographic and trade patterns seen in the other sunbelt
capitals. "The energy industry totally dominated Houston by the 1970s—after all oil
has been at the core of our economy since 1901," explains University of Houston economist
Barton Smith. "Every boom leads people to forget other parts of the economy. After
the bust, people saw the importance of the ports and trade."

Since 1986, tonnage through the 25-mile long Port of Houston has grown by one-third,
helping the city recover the jobs lost during the "oil bust" of the early 1980s. Today
Smith estimates that trade now accounts for roughly ten percent of regional employment
and has played a critical role in the region's 1990s recovery: last year a city renowned
for its plethora of "see through" buildings ranked second in the nation in total office-space
absorption and third in increases in rents.

As in Miami and Los Angeles, the city's growing immigrant population has enhanced
the expanding trade sector. Between 1985 and 1990 Houston, a traditional magnet for
domestic migrants, suffered a net loss of over 140,000 native-born residents. But
the immigrants kept coming—nearly 200,000 over the past decade, making the Texas town
among the seven largest immigrant destinations. In the process, Houston became one
of America's most diverse cities; Houston's Latino population increased from 17 percent
in 1980 to over 27 percent a decade later while Asians grew from barely 2 percent
to over 4 percent
. By the year 2000 Houston's minorities will constitute over two-thirds of the city's
population.

Among those coming to Houston during the 1970s boom was a Taiwan-born engineer named
Don Wang, who in 1987 founded Metrobank with backing from a few Asian friends. Amidst
the hard times and demographic shifts, Wang and his clients, largely Asian, Latin,
and African immigrants, saw an enormous opportunity to pick up real estate, buy homes,
and start businesses in fields such as food processing, distribution, and electronics
assembly. Such minority-owned enterprises now account for nearly 30 percent of Houston's
business community.

In contrast to American-born Houstonians, Wang argues, Asian immigrants, largely
drawn from Vietnam, Taiwan, Hong Kong, and Mainland China as well as the Indian sub-continent,
saw the region's depression as an enormous opportunity to pick up real estate, buy
homes, and start businesses in fields such as food processing, distribution, and electronics
assembly. Suggests Wang:

In the 1980s everyone was giving up on Houston, but we stayed. It was cheap to start
a business here and easy to find good labor. We considered this the best place to
do business in the country, even if no one on the outside knows it. … When the oil
crisis came everything dropped, but it actually was our chance to become a new city
again.